Category Archives: Economics

I keep mulling over the sometimes deserved bad reputation of the proprietary education sector where I work. It’s not easy to get the facts straight. Our students have loan default rates that are significantly higher than other kinds of institutions. (You can see a chart with the numbers, here.) That’s a serious problem. Administrators, like administrators everywhere, work the numbers to make their schools look better. That’s not likely to change.

Default rates are high and going up everywhere, as are tuition and fees, and we still have an unemployment rate of nearly 10%. I do think that the costs of education ought to be tightly regulated, but I don’t know how to figure in the premium you pay for the ability to study from home. Eventually, the for-profits will have to compete with the community colleges and other public institutions for these ‘at home students’ and the for-profits will be forced to lower their prices.

That’s long term and it doesn’t help students now, myself included (my loans are from public schools). If the economy were stronger and so the deficit smoke screen less effective, I think there would be increasing pressure for some sort of relief program for student debt. After all, far more students in default went to school in the public sector. (We have more in default proportionately, but fewer in absolute numbers.) That’s not likely to happen soon either.

What really bothers me is that I don’t feel the public schools have much moral ground for their disdain of the for profits. It’s hard to see the public sector as any more or less exploitative than the private sector. Can we say, for example, that the public sectors’ sometimes wasteful use of public money on president’s salaries or multimillion dollar athletic programs, is any more or less corrupt than the private sectors’ sometimes ugly recruitment policies and high costs?

The for profit education sector, where I work, grew out of two historic circumstances. First, the public sector’s inability to expand beyond their traditional demographics and technologies. (This might be finally changing, if this Western Governors University Indiana is successful.) And second, the existence of government insured– and easily available– student loans.

The public universities left a gaping hole in the market, and the student loan system made it profitable. I wouldn’t want the private system to take over the entire system (we are only a small part of the market) but if the for profits aren’t careful, they will kill the goose that laid their golden egg. (See “Many For-Profits Are ‘Managing’ Defaults to Mask Problems, Analysis Indicates“.)

Regulations shape corporate behavior, so it’s not surprising that schools are creating policies that make the data (on two year default rates) look good. They’ll do the same when the policy shifts to three year default rates. Schools won’t remain profitable, though, if their main story– that an education is worth the investment–begins to seem like a weak sales pitch.

Part of the default rate has to be related to the fact that our students are less affluent, although that is not the only explanation. The rates will improve as the economy improves, too, but that is not going to eliminate all defaults either. In the long run, the rate will only decline if all schools– for profit or otherwise– are tightly regulated, and if we rely less on loans and more on grants.

I realize that many might not take my title seriously, or think that I am simply being sarcastic. I am not. In the 1980s and 90s many U.S. corporations cut costs– and increased profits– simply by laying off much of their middle management. In Canada and Europe, health care costs are contained, at least in part, because a public health care system avoids the high administrative expenses necessary in a for-profit system.

I think the U.S. education system ought to consider trimming costs– and reversing the shift from full time tenured professors to adjuncts and the ongoing rise in tuition and fees– by considering radical changes in administrative structure. After reading, “For Deans, Off Campus is Now is the Place to Be for Deans,” I am think that the Dean– and all of its attendant administrative structure– might be one place to start.

What does a Dean do? According to the article, his or her main function now is “college ambassador, chief visionary, and major fund raiser.” Much of this work, it seems to be, could be done in departments, or in an adequately funded public relations department, or in some cases by interested faculty members. As the article points out, because the Dean is busy elsewhere he has to expand his staff, further increasing administrative costs. It’s bloat.

“[Dean] Peña-Mora …. created… a vice dean for research; a vice dean for academic affairs… an adviser for undergraduate education; a senior associate dean for industry, government, and global education; an associate dean for advancement; and a director of strategic communications. ” The cost of his successful cheerleading is a larger, more cumbersome, administration and an implicit cheapening of the institution. It’s not a good deal.